Positive Externalities

Question 1

Private benefits

Answer 1

A benefit to a consumer inside the price mechanism.

Question 2

Positive externalities (or external benefits)

Answer 2

Benefits to third parties outside the price mechanism.

Question 3

Positive consumption externalities (or external benefits of consumption)

Answer 3

When the consumption of a good creates benefits to third parties outside the price mechanism.

E.g. consuming education will make you more productive and therefore also help your future employers.

Question 4

Positive production externalities (or external benefits of production)

Answer 4

When the production of a good creates benefits to third parties outside the price mechanism.

E.g. producing honey requires bees to be raised; these bees will pollinate nearby crops benefitting farmers